The bank, which runs the most commonly used emerging debt indexes, said it had placed Nigeria on a negative index watch and would assess its place on theGovernment Bond Index (GBI-EM) over the next three to five months.
Removal from the index would force funds tracking it to sell Nigerian bonds from their portfolios, potentially resulting in significant capital outflows. This in turn would raise borrowing costs for Africa's largest economy, although analysts said they did not expect JP Morgan to take such a step.
The bank added Nigeria to the widely followed index in 2012, when liquidity was improving, making it only the second African country after South Africa to be included. It added Nigeria's 2014, 2019, 2022 and 2024 bonds, which make up 1.8 percent of the GBI-EM Global Diversified index.
Investors have $216 billion benchmarked to the GBI-EM, the most popular emerging local debt index. But the bank said the current liquidity issues made it hard for foreign investors to replicate it.
"If we are unable to verify sufficient liquidity in Nigeria's spot FX and local treasury bond market ... it will trigger a review ... for removal," JP Morgan said.
"Conversely, if liquidity improves and investors are able to transact with minimal hurdles, Nigeria will be removed from index watch negative."
The forex and bond markets have come under pressure after the price of oil, Nigeria's main export, plunged. In response, the central bank devalued the naira by 8 percent last year and tightened trading rules to curb speculation.
David Spegel, head of emerging debt at BNP Paribas, said: "I would be very surprised if Nigeria was ejected from the index entirely given the size of the economy and potential for future capital raising in the debt and equity markets there.
"Eventually the whole oil risk issue will be priced into the market and flows of capital and investment will return to Nigeria," Spegel said.